Pakistan Economy - News & Updates - Archive

[Neo]

Pak-India shipping service

NEW DELHI (December 11 2006): After a gap of 30 years, India and Pakistan will restore cargo shipping services this week when they sign a revised protocol in the sector amid a flurry of high-level visits here from the neighbouring country in the coming days.

The protocol, which will allow vessels of the two countries to lift cargoes of a third country from each other's ports, will be signed on December 14.

It will also allow ships of third countries to lift cargoes of India and Pakistan, PTI reported here quoting Pakistan's Acting High Commissioner Afrasiab.

This will be an amended version of the 1975 Shipping Protocol that prohibits vessels of the two countries from lifting cargoes of any third country.

The revised protocol, which is the amended form of an existing agreement, will also facilitate transit facilities for seafarers of either country for joining or disembarking from foreign flag vessels subject to possession of necessary valid seafarers identification documents and applicable transit visa.

The revised version of the protocol, which was considered a confidence-building measure (CBM) after the 1971 war, is expected to help increase trade between the two countries. The signing of the revised protocol will take place amid increased high-level visits here from Pakistan.

Pakistan's Housing and Works Minister Syed Safwanullah will arrive here on Monday to participate in the first Asia-Pacific Ministerial Conference on Housing and Human Settlement, Afrasiab said. The visit is expected to be utilised for bilateral meetings also.

Safanwallah's visit will be followed by the tour of Senate Chairman Mohammedmian Soomro, who will be here to have consultations under the forum of Commonwealth Parliamentary Union, said Afrasiab.

A six-member MQM delegation also undertook a visit here that concluded on Saturday. During the week-long stay here and in Mumbai, the delegation headed by Farooq Sattar met Prime Minister Manmohan Singh and other leaders.

 

[Neo]

World Bank and USAID to work with ADB for investment in energy sector

FAISALABAD (December 11 2006): The World Bank and United States Agency for International Development (USAID) will work with Asian Development Bank on Capacity Development Programme to promote investment in Energy Sector Pakistan.

The investment programme for the power sector as a whole is estimated to be $150 billion (2006-2030) with $2.2 billion expected for Renewable Energy. According to ADB sources, the investment programme in Energy Sector will contribute to economic development through expanded power supply, especially in rural areas.

It will also generate energy equivalent to 1,700 Gigawatt-hours (GWh) annually, sufficient to serve about 600,000 new domestic consumers. It will improve the reliability and quality of supply. It will also increase the utilisation of Clean and Renewable Energy based power.

USAID will also provide direct support to the South Asia Regional Energy Initiative for Energy and assist sector agencies with collecting and assessing wind data.

Finally, Alternative Energy Development Board (AEDB) is already receiving specialised technical support from the German Agency for Technical Cooperation (Deutsche Gesellschaft für Technische Zusammenarbeit), primarily with project preparation.

Official sources stated that the renewable energy development investment programme combines physical investments in new generating capacity across four provinces in several sub-sectors and non-physical interventions in policy reform, capacity development, fiduciary oversight and governance, regulatory and legal frameworks, knowledge management, safeguards, procurement, disbursements, project implementation, evaluation, supervision, monitoring and reporting. The investment programme is the first of its kind in Pakistan. It is also one of the first to be developed under Asian Development Bank's (ADB's) evolving clean energy and environment initiative.

The investment programme has its context in a road map for the energy sector as a whole, in itself a product of diagnostic work over recent years. The starting premise for this work is a recognition that power and energy represent, together with transport connectivity and water, major bottlenecks to high and inclusive economic growth in the country.

Energy supplies are far too dependent on oil imports, the cost of which accounts for a big share of the total import bill. Pakistan needs to be more efficient in energy use, but also to generate more power domestically-through the use of indigenous resources and by changing the mix towards renewable resources. The diagnostic work identified key constraints, challenges, and opportunities. This paved the way for defining a strategic framework, a new policy agenda, and action plans over the short to medium term. The action plans are sequenced and complementary, with transactions involving the private and public sectors, debt and equity finance, and technical assistance.

Nation-wide power demand is outstripping supply, a trend likely to continue unabated for some time. To balance these, Pakistan needs to increase production capacity from 15,500 MW (megawatts) in 2005 to 162,590 MW by 2030.

About 99,000 MW of this is likely to come from thermal power, ie, coal, oil, and gas. But the balance could be met from hydropower and renewable energy, which potentially are environmentally friendlier. Hydro includes large, medium and small plants.

This programme focuses on small to medium plants with significant environmental benefits. Total generation capacity from renewable energy (RE) is currently at a low 180 MW. But there is considerable scope and opportunity to increase it to 9,700 MW by 2030. This will raise RE's profile and its contribution to the total energy mix to 6 percent. This contribution would be much higher were medium to large hydropower generation facilities to be included under the RE package.

Official sources stated that Pakistan's renewable energy potential is greatest in the case of small to medium-sized hydropower plants, but wind, solar, and biomass resources also have potential.

Hydropower resources are located mainly in the northern and central parts of the country, wind and solar resources in the southern provinces of Sindh and Balochistan, respectively. Pakistan's vast agricultural base provides ample opportunities to develop biomass-based energy.

RE delivers on four strategic objectives given in Pakistan's Medium Term Development Framework (MTDF): (i) greater energy security; (ii) reasonable economic and financial returns; (iii) improved social equity, especially in rural areas; and (iv) clean energy and environmental sustainability.

The investment programme for the power sector as a whole is estimated to be $150 billion (2006-2030) with $2.2 billion expected for RE. Of RE, half would be run-of-the-river hydro plants. The rest is assigned to wind energy, solar power, and biomass.

The financing plan involves federal and provincial government budgets, but also the private sector and institutions such as ADB.

The fund-raising strategy calls for a minimum critical mass but also for certainty and diversity of funding sources. A programme of this nature cannot be easily supported on an ad hoc basis, ie, through stand-alone projects processed every two to three years in different sectors and different parts of the country.

The integrity of the investment programme as a whole demands a partnership and continuity. It also means flexibility with regard to subproject choice, a linkage of finance to project preparedness, financial discipline, and maturing physical investments with policy and capacity. It is in this context that the authorities requested ADB support for the programme in the form of a multitranche financing facility (MFF). Such support provides a platform for financial as well as expert assistance, blending reform and capacity development with investments.

Official sources mentioned that the diagnostic work undertaken in support of the programme identified weak capacity at the federal, provincial, and implementation agency levels. Weaknesses differ in importance and magnitude, but include policy formulation, planning, project preparation, financial management, fiduciary oversight, governance in the broader sense (incentives to private sector investment), procedures, systems, safeguards, and procurement.

There is also weakness with regard to evaluation, monitoring, and reporting. The latter include procedures, systems and expertise. The investment programme includes a strong capacity development component. This will support executing agencies (EAs) and implementing agencies (IAs) alike.

Key result areas include (i) information, planning, policy framework formulation and revisions thereof; (ii) human resources development and training; (iii) sector and thematic due diligence, including technical feasibility studies, and RE resource assessments; (iv) systems and procedures for project supervision, monitoring, and reporting; (v) due diligence and mitigation plans (with emphasis on safeguards); (vi) fiduciary oversight, including financial management, procurement, anticorruption measures, and governance; (ix) project management, including accounting and auditing; and (x) outreach work, including communications and public relations. The Alternative Energy Development Board (AEDB) will act as the main counterpart for ADB financing and for the programme. Actual day-to-day work in the sector will be the mandate of specialised RE agencies at the provincial level.

 

[Neo]

Portable PCs market grows by 64.1 percent

KARACHI: The portable PCs segment dominates the overall PC/Server market, as the Pakistan PC shipments grew 20.9 percent in Q2 2006 (April-June) to 173,834 units as compared to the same quarter of preceding year.

The portable PCs segment experienced substantial growth of 64.1 percent year-to-year mainly due to a major deal of 4,500 portable PCs announced by the Bahria University. The government's continuous effort to automate the different public and private sector bodies was also noticeable in the quarter.

The second quarter of 2006 yielded stiff competition among multinational vendors in the desktop market. HP led the market with 5.1 percent share, followed by Lenovo and Dell. The government agenda of promoting local players seems to be materialising for the domestic market development. During Q2 2006, Raffles, a major local player, registered the highest growth in the PC market with 49.5 percent year-to-year growth, while Inbox (another local player) shipments also grew substantially, a report by Springboard Research said.

Among all segments, the government held the greatest share (23.7 percent) of total PC shipments in Q2 2006, followed by large enterprises (500+employees) and the home segment. Additionally, Springboard saw government, banking and telecom sectors spending heavily in strengthening their IT infrastructure.

One area, which drew attention from both local and international players, was the growing telecom sector in the country. Pakistan's telecom sector has witnessed unprecedented growth in the recent years with total IT spending in the industry estimated at $134.5 million in 2005, generating 22.5 percent annual growth.

Currently, the hardware segment accounts for about 70 percent of total telecom IT spending in the country. "With the deregulation of fixed line and mobile sectors, we expect to see a considerable amount of investment, both locally and internationally. In this event, IT business opportunities for vendors will be accelerated," commented Rehan Ghazi, a market analyst.

Although the government has announced new standard operating procedures and projects for the IT industry, the GST imposed in the new fiscal budget had increased computer prices by at least 15 to 20 percent and made them unaffordable for some home users, educational institutions, and other price-sensitive users.

"The Pakistan PC/Server market is one of the fastest emerging segments in South Asia and, in the past few years, the market attracted a lot of attention from international IT vendors. Improving economic indicators and foreign investors' confidence will help the sector gain momentum as well. The growing trend of strengthening the IT infrastructure by both government and private sectors may trigger an expansion of competition in the market," he added.

 

[Neo]

Balochistan wants 20pc share in PPL

ISLAMABAD, Dec 10: Balochistan has started negotiations with the federal government to acquire 20 per cent shareholding in the Pakistan Petroleum Limited and 25 per cent shares in all other concession licences for natural resources to ensure a constant revenue stream to the resource-rich starving province.

The PPL is the country’s oldest and largest exploration and production company with annual sales revenue touching Rs20 billion. It produces more than 300,000 million cubic feet of gas and more than 240,000 barrels of oil per year, besides substantial annual production of condensate, liquefied petroleum gas and other minerals.

Governor Owais Ahmad Ghani told Dawn that he expected the mineral sector to be a major revenue-generating source for the province on the longer run because of 25 per cent shares in each mineral concession agreement the provincial government would be signing with private investors from home and abroad. The province has already been given a 25 per cent shareholding in the Reko Diq mining area, whose value of copper and gold deposits are estimated to be over $70 billion at current market price. The Reko Diq mining area has proven estimated reserves of two billion tons of copper and 20 million ounces of gold. Copper and gold are currently traded at over $7,000 per ton and $640 per ounce respectively. Remaining 75 per cent stakes of the project have now been taken over on 50:50 basis by Antofagasta of Chile and Barrick Gold of Canada.

Mr Ghani said that he had requested to the federal government to provide 20 per cent shareholding in the PPL, which is the operator of Pakistan’s oldest Sui gasfield. He said a major shareholding may go to the private sector as the centre planned to sell it but since it was a provincial resource and had been feeding the entire nation since independence, a shareholding would be of great help and justice to the province.

The provincial government, he said, had been discussing with the centre to ensure 20 per cent shares in the company along with a member on its board of directors to increase provincial revenue.

Responding to a question on the National Finance Commission award and gas royalty, he said the two issues were being “talked and discussed” with the federal government and “some important things are expected soon”.

Governor Ghani said a number of international oil and gas companies were showing interest in Balochistan’s untapped resources and the province would like to acquire shareholding in each petroleum concession agreement, since Balochistan’s financial outcome from Sui field’s royalty was on the decline.

Responding to another question, Mr Ghani said the provincial government was also in discussions with the federal government to retire its expensive cash development loans by taking cheap loans to improve its cash flow position, and the Asian Development Bank was coming forward on this account.

Separately, Balochistan has asked the federal government to reduce the number of federal corporations utilising more than 33 per cent of the country’s total funds so that the province could get its due share for development.

A small Saindak Metals Limited is the only corporation out of total 208 autonomous bodies based in Balochistan, says Ghulam Muhyuddin Marri, chief economist planning in the provincial government.

Mr Marri said the Balochistan government had asked the federal government to extend sea coast jurisdiction from zero to 35 nautical miles to ensure higher income from fishing. The federal government had taken over more than 63 per cent shares of the PPL from the Barmah Oil Company in 1997 to raise its ownership to about 94 per cent. Later, it decided to privatise the company but the Balochistan Assembly adopted a resolution asking the federal government to give its ownership to the province. The centre did not oblige the request.

Last year, the federal government reduced its share in the company by 15 per cent through initial public offering. Now, it plans to sell 51 per cent shares along with management control of the PPL.

Balochistan is currently in a classic debt trap – taking new loans to service old – as its overdraft touched highest ever Rs19 billion this month and interest repayments exceeded Rs250 million per month, arising out of the State Bank of Pakistan’s overdraft and the federal government’s cash development loans. It doles out about Rs3 billion every year in repayments.

 

[Neo]

High cost of doing business

By Sultan Ahmed

AT a time when the country is wooing investors and trying to lure foreign companies in its privatisation process, the issue of high cost of doing a business in Pakistan has come to the fore.

Along with foreign, domestic investors too, are raising the issue as their products face greater competition in a WTO-led world, particularly in textiles - our principle exports.

And this issue has been brought into sharper focus by the World Bank’s annual s survey on the `cost of doing business in 175 countries around the world’. The revision in it’s indicators from year to year causes considerable interest among member-countries and investor-nations.

The Cost of Doing Business Indicators 2007 have been taken seriously and summarised in the annual report of the State bank of Pakistan for 2005-06, released last week.

It is a fact that there had been a significant fall in the status of Pakistan in the 2006 Indicators - when it was ranked 74 out of 175 countries as compared to 66 in 2005. However, it is not the outcome of any degradation in the facilities for investors but the result of the addition of 30 more countries to the index. Some have a far better investment environment than Pakistan; anyway the country has come down by eight points.

But the cost of doing business in Pakistan is far better than in India whose status in the Indicators is 134, while that of China 93, Bangladesh 88 and Srilanka 89.

The State Bank’s annual report underscores the need or rather urgency to improve the areas identified by the World Bank to attract more foreign and domestic investment.

The four major weaknesses identified by the World Bank are: inordinately long time to close a business, long time to register a property, time to start a new business, and delay in getting the credit.

Though by international standards, Pakistan is lagging behind many countries but is better than regional states, including India which is trying to improve its facilities fast.

Weakness in enforcement of contracts is the area in which urgent steps are essential. Inordinate delay can be fatal for business. In this regard Pakistan’s position is a lamentable 163 out of 175 countries. It reflects a serious flaw in the judicial system and practices. The State Bank says the investors want to get their right honoured fairly and at a negligible cost.

The World Bank says the time required for closure of a business in Pakistan is 2.8 years compared with 3.6 years in the region with a cost of 6.3 per cent of the estate value.

Registering a property takes 50 days with the cost of 4.4 of the estate value compared to 116.6 days in the region and 5.3 per cent of the cost of property. In Bangladesh, it takes 88 days to register a property.

Taxation on the companies, says the World Bank, is heavy. A medium-sized company has to make 47 payments and pay 43.3 per cent of the real profits in taxes.

In the area of employment there is a shortage of skilled labour in Pakistan. But it is easier to fire than hire an employee. In the area of labour legislation Pakistan comes at a low 126 out of 175 states.

A mix of complex labour laws and corruption gets a raw deal for workers who get a better deal in most foreign companies as they try to avoid breaking laws.

Making the situation worse by wasting a great deal of time is the red tape. Too many rubber stamps on too many papers are needed which delays the final permission to open a company while breeding extensive corruption in the process.

Our society is raging with too many forgers and false witnesses, hence the officials have to be cautious, particularly, in respect of land transactions which usually takes long.

In regard to income tax, domestic investors complain of double taxation- one of the profits of the company and then the same profit in the hand of shareholders. But the government does not want to give up tax revenues when these are easily spotted and readily collected. The government acts on the maxim that a bird in hand is better than two in bushes. So if it is not ready to let go or reduce revenues coming from existing companies in favour of a larger income which may come from newer companies.

The cost of doing business in Pakistan is enhanced by gross infrastructural inadequacies, particularly water and power shortage. Now, long traffic jams are making the movement of goods more difficult. While wages of workers are low, their productivity too is less and output not high as of skilled workers. So, serious efforts have to be made to impart training to them, particularly in textile, leather and steel industries.

A great deal has to be done to sustain economic growth between six to eight per cent as Dr Salman Shah, Advisor to Prime Minister on Finance desires. We have to increase industrial output and make these more value-added. In business time is money and businessmen cannot afford to waste time and put up with unavoidable delays. The investors want less number of holidays and fewer unscheduled ones which disrupt production and block the movement of goods.

In the West, if a company fails and cannot be made profitable through normal means, it is disposed off and a new business is started and the money lost is regained. But here, the investors hold on to the failing companies for long and use it as a begging bowl to seek favours and concessions from the government. The government hence does not agree to quick disposal of failing companies, including the foreign.

There is a great deal to be done to reduce the cost of doing a business and reducing the hindrances in its way. If done earnestly, Pakistan will not only regain its lost position in the index but will also come up to 50 from 74 by presenting s far more attractive economy to investors, both foreign and local.

 

[Neo]

Positive list to double trade with India

ISLAMABAD, Dec 7: A study has revealed that the formal trade with India could be double from $1 billion to $2 billion after a recent action by Pakistan to increase the positive list of tradable products from 773 to 1075 items.

But, the exchange can quadruple, if only there is closer economic cooperation and that could lead to better peace. Whenever one speaks about the peace-promoting economic relations between India and Pakistan, critics opine that relations between the two are marred by the Kashmir dispute and the cross-border infiltration.

These facts were revealed in a joint research study conducted by secretary general of CUTS International--an Indian based leading research and networking group--Pradeep Mehta and its Pakistani partner Ms Huma Fakhar —- the Lahore-based lawyer of Fakhar Law International and Market Promotion.

Hence, to expect more peaceful relations between the two fast growing economies through trade is a dream. But the researchers said that they did not agree with the assumption that trade could not help in normalising relations between the two arch rivals.

According to the study, a copy of which made available to Dawn, it was suggested that the US government can promote mutual trade between the two countries by offering duty-free imports, if one used the other’s inputs in their exportable items to the US. This idea, the researchers said played positive role in case of many countries.

The study pointed out the example of US scheme of qualified industrial zones (QIZs), which was in operation since 1996, in a bid to promote peace in the Middle East between Israel with Jordan and Egypt. The scheme allowed duty free export to US market from Jordan and Egypt in case a minimum level of inputs from Israel was used in the manufacturing of these products.

Since both India and Pakistan are currently preparing to or entering into various preferential trade agreements (PTAs), bilateral as well as regional) with other countries and regions both with developed and developing countries, it would be sensible to include QIZs type arrangements in some of the agreements, particularly with EU, US and China and even within Safta and the proposed Asean-India FTA.

Such arrangement would help both Indian and Pakistani exporters and importers to reap benefits of free trade as well as promote greater cooperation, the research paper said.

The report says the mega projects like the Turkmenistan-Afghanistan-Pakistan and the Iran-Pakistan-India gas pipeline projects would help in promoting trust and regional economic cooperation between India and Pakistan.

Though both India and Pakistan are moving closer, it is at a snail’s pace and constantly encountering hurdles. Some of these measures could divert attention from sticky matters and accelerate the speed of greater economic cooperation between the two nations through reduction (if not elimination) in tensions and mistrust and bringing in peace and tranquillity in this region, the researchers opined.

 

[Owais]

November trade deficit $1.39 billion


ISLAMABAD (updated on: December 11, 2006, 15:17 PST): The country's trade deficit widened to a provisional $1.39 billion in November from $849.6 million in October and $1.18 billion in November 2005, official data showed on Monday.

The cumulative trade deficit for the July-November period was $5.50 billion against $4.58 billion a year earlier, the data from the Federal Bureau of Statistics showed.

 

[Owais]

CFS investment up by Rs 800 million

KARACHI (December 11 2006): The Karachi Stock Exchange (KSE) during the week witnessed a rise in CFS investment by Rs 800 million. KSE figures showed that investments under CFS stood at Rs 35.70 billion against Rs 34.90 billion in the previous week, recording an increase of Rs 800 million.

The interest on CFS financing, rising by 1.39 percent, reached 14.1 percent. Open interest in futures contracts was also seen swelling, while investments under CFS in December contracts remained Rs 9.10 billion, and the interest on CFS financing in futures contracts stood at 7.3 percent.

Experts attributed the increase in CFS investment to the transfer of in-house Badla to CFS

 

[Owais]

$2.238 million foreign investments in bourses

KARACHI: Foreign investors during the current month made investments amounting to $2.238 million in the bourses here.

State Bank of Pakistan (SBP)’s released figures showed that the US withdrew $5.479 million and Hong Kong about $2.2 million during the current month, while Britain with $4.086 investments during the same period topped the list.

Foreign investors during the current year thus far made investments of $294 million in the Pakistani stock exchanges.

 

[Neo]

Albaraka Bank Pakistan plans IPO

MAMAMA: December 11, 2006: Bahraini Islamic bank AlBaraka is planning to float 25 percent of its unit in Pakistan to bring its capital to $100 million, the minimum for a Pakistani bank, an AlBaraka official said on Monday.

'We are thinking of having an IPO in Pakistan and turning it (Albaraka Pakistan) around and making it an independent bank,' Albaraka General Manager Salah Zainalabedin told Reuters.

'In Pakistan right now they (banking authorities) are looking at a minimum capital of $100 million ... so we will probably be looking at that size,' he added.

The IPO was to take place "soon" but not in the next two months, he said.

Zeinalabedin said Albaraka had obtained the approval of State Bank of Pakistan for the IPO, and planned to sell a 25 percent stake to private investors, while retaining 50 percent. Albaraka Turk, Albaraka's affiliate in Turkey, plans an IPO next year, its general manager said last week.

Zeinalabedin also said AlBaraka hoped to arrange up to $500 million worth of Islamic bonds, or sukuk, in the coming year through two or three deals with issuers

 

[Neo]

PSA makes highest Gawadar port bid: port official

KARACHI: December 12, 2006: A consortium led by Singapore port operator PSA International has submitted the highest bid to manage Gwadar Port but the tender has not yet been awarded, a port official said on Tuesday.

'We cannot give the figure quoted by PSA International until the negotiations are final but they are the highest and the successful bidder,' the official of the Gwadar Port Implementation Authority said, declining to be named.

The PSA bid was accepted at the weekend.

The Gwadar deep-sea port is on the Arabian Sea, about 450 km (280 miles) west of Karachi and about 70 km (45 miles) east of the Iranian border.

China provided $198 million for the $248 million port project. It is scheduled to begin operations next year.

Under the concession, the winning bidder will take over the operation and management of the port for 40 years.

The port official said the offer from the runner-up -- Pakistan International Container Terminal -- was "far behind" that of the Singaporean operator.

"We are in the process of finalising technical and financial terms and conditions with them and will take a decision very soon," the official said.

Pakistan's AKD Group is part of the Singaporean consortium.

 

[Neo]

July-November trade deficit swells to $5.41 billion

ISLAMABAD (December 12 2006): The trade imbalance has gone up sharply to $5.41 billion during July-November of the current fiscal year which is about 17.91 percent higher than the corresponding period last year ($4.58 billion), the Federal Bureau of Statistics (FBS) reported on Monday.

During this period, Pakistan's exports totalled $6.93 billion and imports $12.33 billion against $6.59 billion and $11.18 billion, respectively, recorded during the same period last year.

The FBS provisional data reveal that Pakistan economy pulled in 10.35 percent more imports during July-November, while exports rose only by 5.09 percent. The high growth in imports and slow pace of exports is responsible for burgeoning gap. The worse is that the gap is steadily widening. It is important to note that previously, in its trade policy for the FY07, the government targeted imports at $28 billion and exports of $18.6 billion with a trade deficit of $9.4 billion during the year.

The huge import pressure and low pace of exports have compelled the government to project upward the trade deficit. A few days back, the commerce ministry had raised its projection of trade deficit to $12.2 billion.

According to the figures, exports during November 2006 increased to $1.38 billion as against $1.28 billion in October 2006, showing a growth of 7.64 percent. While imports in the same period are up by 30.11 percent to $2.77 billion compared to $2.13 billion in October 2006.

It is feared that the slow growth in exports may make it difficult to achieve the target of $18.6 billion. During the fiscal 2005-06, the government had missed its exports target of $17 billion by a margin of $531 million.

During November, the exports increased by 23.94 percent to $1.38 billion and the imports up by 20.64 percent to $2.77 billion as compared to the same period last year.

 

[Neo]

'Political unrest, twin deficit major challenges to economy'

KARACHI (December 12 2006): Pakistan fiscal side is expending as on the monetary side there is no room as investment cycle has slowed. In order to keep growth in the economy, the government is likely to increase its fiscal expenditure, especially on the development side, and that would lead to an increase in fiscal deficit.

Besides, the 2007 election is an immediate major challenge for the economy. One should expect the exiled leaders to return, which might create political unrest and, probably, affect the production side. These views were expressed by KASB Securities group economist, Muzzammil Aslam, in an interview with Aaj TV 'Money Matters' program.

He said that election outcome was important as economic growth is subject to continuation of recent policies and the ongoing reforms. About economic performance he said that for the last three years Pakistan's economic growth has been strong.

The economy recovered in 2004 and picked up pace and in 2005 it registered 8.6 percent growth rate. In 2006 the economy slowed down and registered 6.6 percent growth. Amid capacity utilisation of industrial sector was almost 90 percent whereas agriculture sector witnessed a blip due to high base effect.

He said that in 2007 growth would exceed 7 percent target against market consensus of 6 to 6.25 percent, due to turnaround in agriculture sector, which is likely to register a 4.5 percent growth.

Industrial sector is likely to expand by 10 to 11 percent growth, whereas services sector is expected to perform well and is likely to register a growth rate of 8 percent.

On the outlook of second quarter of current fiscal year he said that going forward economic growth would continue. It will be the wheat crop that would drive the sentiment of the economy. A bumper crop and high wheat prices internationally would give buying power to farmers and with money in their pocket they would have demand for goods and services, which would drive the manufacturing sector. "So, in terms of growth, second half of the fiscal year seems stable."

In terms of macro economic stability, he said there might be some surprises. "Fiscal deficit is the talk of the town. It is election year; the government is likely to spend lavishly. Besides, talks are already underway for reducing oil prices. Expectations are that they will keep it lower to have good numbers in masses.

Moreover, current account deficit and the exchange rate policy are two other major factors to watch. All in all, there will be some surprises as far as our macroeconomic numbers are concerned." The program will continue the discussion on these questions, and researchers from JS, BMA, AKD and Arif Habib Securities are scheduled to participate in it during the current week.

 

[Neo]

Saving and investment gap widens to 3.6 percent of GDP

FAISALABAD (December 12 2006): The gap between the savings and the gross domestic product (GDP) has widened to 3.6 percent during 2005-06, up from 1.6 percent, said official sources.

The sources further said that a high saving-investment gap had adverse implications for the macroeconomic stability, but the present widening in this gap was not an immediate concern since the economy was able to finance this resource gap through higher foreign direct investment (FDI) and remittances.

Moreover, the country's level of foreign exchange reserves was also relatively sufficient as compared to the 1990s, when the saving-investment gap was quite high, they said. However, given that a significant part of FDI, consisting of privatisation proceeds, a sustained saving-investment gap could pose serious threat to macroeconomic stability, said the sources. "Thus, there is a need to improve domestic savings through institutional arrangements and conducive policies," they opined.

They are of the view that an expansion in the network of banks, micro-finance institutions and postal savings to the far-flung areas was needed with a friendly atmosphere for the small depositors.

In addition, savings schemes for school/college students could also help inculcate in students' savings behaviour from the early age. Admittedly, there should not be regulatory intervention in the determination of rate of return on deposits. However, if the financial institutions form a cartel to artificially suppressed returns on deposits, they should be treated accordingly through regulations.

Although national savings rose sharply by 16.5 percent during FY06 compared with 7.5 percent growth in the preceding year, nonetheless this increase is lower than the rise in nominal GDP.

As a result, the national savings to GDP ratio slightly dropped by 0.1 percent to 16.4 percent of GDP during FY06, the lowest level of national savings since FY2001.

In fact, rising interest rates on national savings to GDP ratio did not improve mainly due to the following reasons:

-- Prevailing negative real returns on deposits being offered by the banks.

-- Rise in NSS rates was not in line with the expectations.

-- Continued ban on institutional investment in the NSS, which has been relaxed during FY07.

-- Continued consumption boom in the economy.

In particular, the strength of aggregate demand, supported by both an expansionary fiscal policy as well as rising private consumption in recent years, deteriorated the savings rate in the economy.

 

[Neo]

OGDC's GDS oversubscribed by 100 percent

ISLAMABAD (December 12 2006): The Oil and Gas Development Company''s (OGDC) global depository share (GDS) has been oversubscribed by 100 percent as it fetched $1.5 billion commitments from institutional buyers against the target of $713 million. However, the government decided to take the transaction value only at $813 million, inclusive of $100 million of over-allotment option.

The Privatisation Commission on Monday announced that on behalf of the government of Pakistan the lead managers used over-allotment option for GDS and now total proceeds of the transaction will be around $813 million. It said that Citigroup, Goldman Sachs International and BMA Capital have exercised over-allotment option for 53,294,000 GDS.

Talking to Business Recorder OGDC managing director Arshid Nasar said that GDS was oversubscribed and this inspired the government to use over-allotment option for institutional investors. He added that secondary offering in the local market was every much on schedule and it was going to be available to local investors after December 15.

BMA Capital, Citigroup and Goldman Sachs International are Joint Lead Managers with Citigroup and Golden Sachs International acting as joint global coordinators and Bookrunners for the international offering and BMA Capital as Lead Manager and Bookrunner for the domestic offering and joint lead manager of the international offering.

The retail offer of 21,505,000 shares to investors in Pakistan at the price of Rs 110 per share will commence in December and is expected to be completed within a few weeks. The retail price represents an effective discount of almost 3 percent to the institutional offer price after adjusting for company''s announced first quarter dividend payment of Rs 1.75 per share. Commenting on over-allotment option, Privatisation Minister Zahid Hamid said that additional shares will add $100 million to net proceeds and the amount will be utilised as per law to pay back debt and poverty alleviation.

He said OGDC GDS was Pakistan''s biggest-ever transaction and it raised the confidence of foreign investors in today''s Pakistan. While launching the GDS the minister had announced that Pakistan will use the option of over-allotment in case OGDC share in the international market oversubscribed.